Great Spice Crash
The Great Spice Crash was the economic collapse that followed massive speculative investments in the spice trade based on an expectation of future increased supply that did not materialise. As a result, numerous companies collapsed, infrastructure investments devalued and loans written off, leading to huge financial losses for private and government investors. In particular, the Commonwealth of Pem was nearly bankrupted by the economic fallout and the crash also lead to the re-incorporation of the city-state of Coltar into Pem after losing 50% of its capital on defaulted loans. Background Following the defeat of the pirate Meldrew in 395BGE trade between Raqqos and Rubellium began after a period of declined trade. By 380 BGE Raqqos ended many of its restrictive trade restrictions and new markets for goods opened up in both countries. Raqqosian spices increasingly came to the attention of the Pemblish and prices began to rise rapidly but steadily. However, as demand grew both domestically and further abroad in city-states and foreign nations, prices began to spiral upwards. Eager to meet demands and reap the economic benefits of the lucrative trade, numerous new companies were established to purchase and distribute spices. Furthermore, huge infrastructure investments were undertaken by private individuals (in the forms of boats, transport vehicles, warehouses, administrative buildings and employees) as well as governments (in private and public companies and in road and public-owned naval infrastructure). However, these investments were based on both the assumption in sustained prices but, most crucially, the expectation that supply would gradually increase alongside demand. Speculators did not understand that, not only could the spice only be grown on Raqqos but that Raqqos was not willing (nor significantly able) to expand its production. - governments and individuals flooding the market with their money, eager to invest - initial undervaluing lead to investment momentum - new markets exacerbated investment - high value versus other goods available - seen as a 'safe' investment, so loans provided to unsuitable companies, insufficient risk planning - loans made to companies based on future expectation of ability to pay - auctions meant that companies need huge cash reserves/investments to successfully purchase goods, resulting in large loans/investments in numerous companies how were infrastructure investments going to pay back? As the people of Raqqos became enriched through their tradecrafts, their tastes for foreign imports increased. Similarly, Raqqosian goods became increasingly desirable in the centrelands as new markets opened up across the Commonwealth and in the Tall Kingdom and Aleuria. In particular Raqqosian spices, unique to the exact climate of the island of Raqqos, became increasingly demanded across the Central Continent and prices rose phenomenally, at one point reaching £4910/kg on average. On the Central Continent, huge speculative investments were made based around the spice trade and Raqqos expanded their spice growing operations to encompass the entire Consulate Gardens. However, against the expectations of many speculative investors in the Centrelands, the Consulate could not and did not further expand their spice growing (as the spice could only be grown on the island and there were no further areas in which growing could be expanded), causing the collapse of numerous companies overseas in 359, an event known as the Great Spice Crash. As spice production and distribution was controlled centrally through the Consulate, there was no direct economic fallout amongst ordinary Raqqosian citizens and Consulate production and export of spices continued as normal, in great disparity to the economic crises that the crash had caused abroad. However, the economic collapses abroad did have a temporary negative knock-on effect on exports. Category:Events Category:Economics Category:Pemblish Politics Category:Raqqosian Politics